Barclays 2005 Annual Report Download - page 50

Barclays PLC
Annual Report 2005
48
Tax Risk
The Group is subject to the tax laws in all countries in which it
operates. A number of bilateral double taxation agreements entered
between two countries also impact on the taxation of the Group.
Tax risk is the risk associated with changes in tax law or in the
interpretation of tax law. It also includes the risk of changes in tax rates
and the risk of failure to comply with procedures required by tax authorities.
Failure to manage tax risks could lead to an additional tax charge.
It could also lead to a financial penalty for failure to comply with
required tax procedures or other aspects of tax law. If, as a result of a
particular tax risk materialising, the tax costs associated with particular
transactions are greater than anticipated, it could affect the profitability
of those transactions.
The Group takes a number of steps to manage its tax risk. Primarily:
•tax risks are assessed as part of the Group’s formal governance
processes and are reviewed by the Risk Oversight Committee and
the Board Risk Committee;
•the tax risks of proposed transactions or new areas of business are
considered before proceeding;
•the Group employs high-quality tax professionals and provides
ongoing technical training;
•the tax professionals understand and work closely with the different
areas of the business;
•the use of effective, well documented and controlled processes to
ensure compliance with tax filing and reporting obligations.
Effect of Governmental Policy and Regulation
The Group’s businesses and earnings can be affected by the fiscal or
other policies and other actions of various governmental and regulatory
authorities in the UK, the European Union, the US and elsewhere. The
nature and impact of future changes in such policies and regulatory
action are not predictable and are beyond the Group’s control.
There is continuing political and regulatory scrutiny of, and major
changes in, legislation and regulation of the retail banking and
consumer credit industries in the UK and elsewhere.
In the EU as a whole, this includes an inquiry into retail banking in all 25
member states by the European Commission’s Directorate General for
Competition. The inquiry is looking at retail banking in Europe generally
and the Group is co-operating with the inquiry. The outcome of the
inquiry is unclear, but it may have an impact on retail banking in one or
more of the EU countries in which the Group operates and therefore on
the Group’s business in that sector. In the UK, in September 2005 the
Office of Fair Trading (OFT) received a super-complaint from the
Citizens Advice Bureau relating to payment protection insurance (PPI).
As a result of its inquiries, the OFT then announced in December 2005
that it will commence a market study on PPI in March 2006. The scope
and impact of the study is not known at present.
In relation to UK consumer credit:
•The OFT has carried out investigations into Visa and MasterCard
credit card interchange rates. The decision by the OFT in the
MasterCard interchange case is being appealed to the Competition
Appeals Tribunal and the appeal is expected to be heard towards
the end of 2006. The OFT’s investigation in the Visa interchange
case is at an earlier stage.
•The OFT also has a continuing investigation into the level of late
and over-limit fees on credit cards. The OFT issued a press release
in July 2005 stating that their provisional conclusion was that these
fees were excessive and need to be reduced to be fair. The OFT gave
Barclaycard, and seven other credit card companies, three months
to provide suitable undertakings regarding the basis of these
charges or otherwise to address the concerns of the OFT.
Barclaycard responded to the OFT in October 2005 further
explaining the position Barclaycard takes in respect of late and
over-limit fees and has continued to work with the OFT to address
its concerns. Barclays continues to consider the impact of the
provisional finding on the credit card industry and Barclaycard,
including steps to mitigate any financial impact on shareholders.
These investigations are looking at several aspects of the UK
consumer credit industry and the Group is co-operating with them.
Their outcome is not known but they may have an impact on the
consumer credit industry in general and therefore on the Group’s
business in this sector.
The OFT announced in January 2006 that it would be reviewing the
undertakings given following the conclusion of the Competition
Commission Inquiry in 2002 into the supply of banking services
to SMEs. The OFT will commence that review in March 2006 and
anticipate that it will take them nine months. The Group will
co-operate fully with that review.
Other areas where changes could have an impact include:
•the monetary, interest rate and other policies of central banks and
regulatory authorities;
•general changes in government or regulatory policy that may
significantly influence investor decisions in particular markets in
which the Group operates;
•general changes in the regulatory requirements, for example,
prudential rules relating to the capital adequacy framework
(page 56);
•changes in competition and pricing environments;
•further developments in the financial reporting environment;
•expropriation, nationalisation, confiscation of assets and changes in
legislation relating to foreign ownership; and
•other unfavourable political, military or diplomatic developments
producing social instability or legal uncertainty which in turn may
affect demand for the Group’s products and services.
Impact of Strategic Decisions taken by the Group
The Group devotes substantial management and planning resources to
the development of strategic plans for organic growth and identification
of possible acquisitions, supported by substantial expenditure to generate
growth in customer business. If these strategic plans do not deliver as
anticipated, the Group’s earnings could grow more slowly or decline.
Competition
The global financial services markets in which the Group operates are
highly competitive. Innovative competition for corporate, institutional
and retail clients and customers comes both from incumbent players
and a steady stream of new market entrants. The landscape is
expected to remain highly competitive in all areas, which could
adversely affect the Group’s profitability if the Group fails to retain and
attract clients and customers.
Risk factors